1. $280 $287 $319 $397 $494 $657 $766 $687 $705 $724 $744 0 100 200 300 400 500 600 700 800 900 Out-of- pocket spending per person Historical Trends in Cost-Sharing 19601965197019751980198519901995200020012002 0 10 20 30 40 50 60 Percentage of total spending Out-of-pocket spending as a percentage of all personal health care spending Source: Centers for Medicare & Medicaid Services, 2004. 1

2. What Explains the Increase in Total Medical Spending over the Last Fifty Years? Technology Prices Insurance Income Aging

3. Features of risks that should be insured Unlikely Expensive Uncertain Use is not sensitive to insurance (inelastic demand) 3

4. Why do we have health insurance? Insurance against financial loss Transfer money to people who are sick Tool for population health?

5. So how does cost-sharing line up with our insurance goals? Example 1: Traditional oral agents like anti-hypertensive drugs – Not rare – Not expensive – Not uncertain – Not a good candidate for insurance – Now covered generously Example 2: Specialty drugs like Avastin for metastatic cancer – Rare – Expensive – Uncertain – Trend is to require extreme cost-sharing to pass risk back onto patients 5